Petrobras has cancelled its tender for the Parque das Baleias project, thereby failing to reach an agreement with YINSON which emerged as the project’s sole bidder. Meanwhile in other tenders, YINSON is also reportedly losing out in Pecan, despite being initially touted as a favourite, while competition in Limbayong remains tight. Given recent developments, we believe the likelihood of YINSON securing a new contract, especially within the year, to have significantly diminished. As such, we downgrade to MP with lowered TP of RM5.10.

Parque das Baleias tender cancelled. Upstream reported that Petrobras had cancelled the tender for its Parque das Baleias project as it failed to reach an agreement with YINSON. To recap, YINSON emerged as the project’s sole bidder twice consecutively. The project’s original tender was launched back in 2019, with YINSON being the only qualified bidder. Subsequently, last year, Petrobras had opted to do a rebidding on the project, in hopes of inducing more bidding competition in pursuit of better pricing. Nevertheless, the rebidding yielded no different result as YINSON once again emerged as its sole bidder, at a reportedly proposed day rate of ~USD645k.

What next? With this latest development, Petrobras will most definitely postpone the project’s planned first oil date of 2024. We believe this indicates that the project has indeed lost its priority status with Petrobras, and could possibly highlight the oil major’s willingness to wait for the project to be more economically attractive. At this juncture, it is still unsure whether Petrobras may opt to launch yet another round of bidding. Given the industry’s lack of competition, Petrobras is seen to be gradually adopting a newer contracting model of “build-operate-transfer” (as opposed to the traditional “lease-and- operate”). In fact, just recently in July 2021, Petrobras has launched the tender of the Sergipe-Alagoas FPSO under this new contracting model – being the company’s first in recent history.

Status of other YINSON’s bids. YINSON is also currently participating in the rebidding for Aker Energy’s Greater Pecan project in Ghana. However, latest reports are now suggesting that Oslo-listed Ocean Yield might be the favourite candidate, with YINSON being runner-up. To recap, YINSON was initially seen as the favourite, having emerged victorious during the project’s first round of bidding, and was even subsequently awarded a letter of intent (LOI) by Aker Energy for the charter of its FPSO back in February 2021. However, by April 2021, Aker Energy terminated its LOI with YINSON as the Covid-19 pandemic had prompted a reconceptualization on the project’s economic feasibility. A new round of rebidding was later launched in October, in which YINSON re-participated.

Elsewhere, YINSON is also in active tender for the Limbayong FPSO, offshore Sabah. No clear favourites have been identified yet, as competition remains tight. Given the project’s reported local content requirement, bids are largely dominated by local companies, which include MISC, Sabah International Petroleum (non-listed, owned by the Sabah state government), as well as a trio-partnership of ARMADA, MTC Group (non-listed) and India's Shapoorji Pallonji. We expect Petronas to announce the project award by this year, with a contract period of 12+3+3+2 years.

Downgrade to MARKET PERFORM, with a lowered SoP-TP of RM5.10 (from RM6.55 previously). Seeing that YINSON is now losing out on the two project tenders where it was initially thought to be clear favourites, we believe the likelihood for the group to land a new contract, especially within the year, to have significantly diminished. As such, we have conservatively removed our new contract wins assumption from our SoP-valuation. Additionally, the group is also at high risk to be removed from the Shariah-compliance list in the upcoming review.

Risk to our call: (i) Securement of a new contract, (ii) project execution risks, (iii) refinancing risks, and (iv) termination of existing order book.

Source: Kenanga Research - 23 Aug 2021